Usage Pricing

Description

Price items not as a single transactional cost but in an ongoing way, based
on how and when the product or service is used.

The price may be fixed or may be changed dynamically based on demand factors
such as the time of day or the ability of the customer to pay.

As ever, the price needs to take into account alternative and what
competitors charge. However, when competitors use a single transactional price,
and even if you also do this, you can have a usage-based pricing option.

Example

A coffee shop owner in a business district, finding people
using the place like an office, charges for how long people stay there, but
gives one cup of coffee free per hour.

An online accounts service charges by the time in various
modules used (for example tax planning, salary processing, etc.).

Discussion

Some pricing lends itself naturally to usage charges based on duration of
use, such as car parks. Other pricing may be based on urgency such as a
plumber's price for out-of-hours emergency call-outs.

A benefit for customers of usage pricing is that they avoid up-front costs.
This can be particularly attractive to businesses and to people who cannot
afford up-front prices.

There is scope for innovation in usage pricing that can give companies
competitive advantage.